The IRS Agent with a Weakness for Shrimp

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photo via farm4.static.flickr.com

TIGTA (Treasury Inspector General for Tax Administration) often includes in its semiannual report to Congress highlights of the past 6 months and high profile cases that the agency has resolved.  The most recent semiannual report tells of the bribery of an IRS Revenue Agent by the owner of a seafood company in Louisiana.

An unnamed IRS agent paid a visit to Vihn Q. Tran, the owner of St. Vincent Seafood Co. in Louisiana, back in August 2007 with the intent to schedule an in-person audit of his books.  At that first encounter Tran offered to take the agent to lunch and also dropped a hint that he was hoping for some special treatment when he told the agent, “I’ll take good care of you.”  The IRS agent declined these initial offers, but then in subsequent meetings accepted 75 pounds of jumbo shrimp and $6,000 cash.  In April 2011 Tran confessed to the crime.  In January 2012 he pled guilty to bribery of a public official, and he was sentenced to three-years’ probation this past March.

TIGTA’s report does not specify, but it appears to me that the IRS agent was culpable at least for violating the guidelines set forth in the Internal Revenue Manual (IRM).  According to IRM section 4.2.4.2.3, IRS employees are required to do the following when presented with a bribe:

  • Avoid any statement or implication that you will or will not accept the bribe.
  • Attempt to hold the matter in abeyance.
  • Report the matter immediately to the Inspector General Special Agent.
  • Avoid any unnecessary discussions of the matter with anyone.

Unless some key facts are being left out of this report, it does not appear that the agent complied with these rules.  By accepting the cash and the shrimp, the agent violated the first two rules, and although the agent must have reported the bribes at some point, it does not appear that he did so immediately.

As for Mr. Tran, I would guess that he has since gone out of business.  It looks like his tax problems were just one of a variety of issues he had been dealing with as a business owner.  The US Food and Drug Administration (FDA) sent him a letter in 2002 pointing out some “serious deviations” from federal seafood regulations, one of which had to do with, not surprisingly, record-keeping.

The IRS has a new misstep every day – what scandal is next?

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During congressional hearings on the Internal Revenue Service (IRS) scandal, Congressman Hal Rogers (Republican – Kentucky) said, “It seems we have a new misstep every day at the IRS.” This is on the heels of news of lavish spending on conferences by the IRS. This of course was expected after new broke in March about the ridiculous Star Trek Parody Videos.

A report released Tuesday by the Treasury Inspector General for Tax Administration (TIGTA) details frivolous spending by the IRS which included $27,000 on an innovation expert, $10,000 on diversity and inclusion expert, $11,000 on a happiness expert, and $17,000 for something called leadership through art.  Given the overall demeanor of the IRS employees I’ve had the pleasure of dealing with as a tax attorney; I don’t necessarily disagree with the IRS trying to improve their happiness.

TIGTA conducted its audit to identify the IRS’s spending on conferences during fiscal years 2010 through 2012.  The audit’s primary focus was on the IRS Small Business and Self-Employed division’s 2010 conference in Anaheim where it spent $4.1 million for planning trips, outside speakers, video productions, and promotional items and gifts for IRS employees.

“Excessive spending by federal agencies on management conferences has been highlighted by recent Inspectors General reports and in congressional hearings,” said TIGTA Inspector General J. Russell George. “Effective cost management is especially important given the current economic environment and focus on Government efficiency. Certain of the IRS’s expenses associated with the Anaheim conference do not appear to be a good use of taxpayer funds.”

In watching the recent hearings, it seems like members of Congress are out of touch with their constituents and surprised as to the frustrations the public has to endure while dealing with the IRS every day. The surface is just being scratched as to inappropriateness at the IRS as the issues under scrutiny have not even (yet) dealt with IRS collection and audit issues. However, there may be pressure to not bring such issues to light as I suspect the IRS collection and audit practices may scare the public, and as Congressman Mike Kelly (Republican – Pennsylvania) repeatedly lectured during Tuesday’s hearings, “do not be afraid of this government.”

You’re not paranoid if you think you’re being targeted by the IRS for tax purposes.

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According to CBS and Reuters, the Treasury Inspector General for Tax Administration (TIGTA) is expected to publish an investigative report this week detailing that Internal Revenue Service (IRS) agents specifically targeted conservative groups for review and consideration of their tax exempt status.

According to Reuters, director of exempt organizations for the IRS, Lois Lerner apologized Friday for what she called the “inappropriate” targeting of conservative groups for closer scrutiny, something the agency had long denied. She said the screening practice was confined to an IRS office in Cincinnati; that it was “absolutely not” influenced by the Obama administration; and that none of the targeted groups were denied tax-free status.

The TIGTA findings detail that the names and purposes of groups were used to scrutinize applications. Name scrutiny included organizations such as Tea Party, Patriot, and 9/12. Scrutiny was also being improperly given to references to government spending, government debt, taxes, education of the public via advocacy/lobbying to make America a better place to live; and statements that criticize how the country is being run.

IRS employees are presently prohibited from targeting anyone for their political or religious beliefs. However, under current law such conduct would only be grounds for termination. Wasting no time to ride the coattails of a juicy scandal, Congressman Mike Turner of Ohio already unveiled a bill to make such actions a felony. Considering that nobody seems to know anything in these types of cases, and that the portions of the report available so far appears to be no different, it will be interesting if anyone is ever prosecuted criminally if the bill were to pass.

More Aggressive Collection Trend at IRS

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In a report released publicly this week, the Treasury Inspector General for Tax Administration (TIGTA) stated that taxpayer satisfaction should be a factor in measuring the effectiveness of the IRS Collections Department.  I like to think the IRS will also be concerned with the satisfaction levels of taxpayers’ representatives.  In all my years of practice, I have never been asked about how satisfied I was with the interactions I had with a call center employee.  I have never been asked to complete a satisfaction survey at the conclusion of a revenue officer case.  But, maybe things are going to change.

Although they would have you believe otherwise, based on my experience, the IRS is primarily concerned with collecting revenue.  Afterall, just how effective would Collections be if they focused mainly on customer satisfaction?  The report doesn’t seek to conceal this fact.  Here are some interesting statistics that caught my eye:

  • The average dollars collected per revenue officer was 14 percent higher in Fiscal Year (FY) 2011 than in FY 2009.
  • The dollars collected through installment agreements in FY 2011 were 32 percent higher than the amount collected in FY 2009.
  • Overall, the total dollars collected in FY 2011 were 20 percent higher than the amount collected in FY 2009 even though there were fewer revenue officers on staff.

This is not the best news for those with unpaid taxes.  When revenue officers go about collecting dollars, they do so through asset seizures, wage garnishments, bank levies, etc.  So the fact that this statistic is on the rise, I think tells us something about the aggressiveness of IRS collections, especially because they’re doing it with fewer people these days.

Caution Upon Contact

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I have written before about the Potentially Dangerous Taxpayer (PDT) designation that can be given to those who are stupid enough to harm or threaten IRS employees.  A recent audit done by the Treasury Inspector General for Tax Administration (TIGTA) finds that IRS employees have been well trained in the criteria and procedures having to do with PDT, but are not as familiar with the less grievous CAU (Caution Upon Contact) designation.

Your tax account will be coded PDT if you harm, threaten, or intimidate IRS employees with specific acts, or if you affiliate with groups that advocate such actions.  You can also be labeled PDT if you have demonstrated a clear propensity towards acts of violence in the previous 5 years.  The CAU designation is just one step below this and includes any “threat of physical harm that is less severe or immediate than necessary to satisfy PDT criteria” — a catch all for taxpayers who are really, really annoying, but not obviously dangerous.

These designations are important because they dictate how IRS personnel are to approach (or not approach) certain taxpayers, and they dictate what kinds of “back up” they are entitled to during field visits.  According to the TIGTA report, failure to report (and accurately designate) dangerous or threatening taxpayers creates an undue risk for other IRS employees who may have future interactions with them.

Can PDT or CAU taxpayers be forgiven of their bad behavior?  Yes, after 5 years.  But the 5-year period begins afresh if any of the following occur:

  • additional PDT/CAU referral
  • IRS employee physically assaulted
  • taxpayer arrested for threats or actual violence towards IRS employee
  • “current IRS activity” on their account

This final criterion is interesting.  The report indicates that examples of “current IRS activity” are an audit or a balance due.  In other words, somebody who threatens an IRS employee and then doesn’t pay off his tax debt within 5 years must endure the ugly label of PDT/CAU for a minimum of 10 years.  Remember, you don’t have to like the person who issued a tax levy against you, just be civil!

The Neglected Government-Issued BlackBerry

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Most people wouldn’t pay for internet service if they didn’t have a computer.  And most people wouldn’t keep the car insurance current on a rusted bucket of bolts that isn’t being driven.  But the IRS isn’t “most people.”  The latest report from the Treasury Inspector General for Tax Administration (TIGTA) reveals waste within the IRS that rivals situations like these.

According to TIGTA, the IRS has been wasting millions of dollars on BlackBerrys and aircards (which supply mobile internet access).  In 2011 the IRS spent about $8.5 million on 35,000 aircards and $2.9 million on 4,400 BlackBerrys.

The audit found that some of these devices were left completely unused for months.  It’s kind of inconvenient to have to carry around two phones all the time; I get that.  I imagine IRS employees discarding their BlackBerrys for their own phones (probably much cooler iPhones) because they are not allowed to use their government issue phone for anything other than business purposes.

The audit also revealed that some smart phones and aircards were given without obtaining proper permission/approval.  Besides managers and field officers, I just don’t see that there are too many IRS employees who would need these devices.  I can understand why a revenue officer may need mobile internet access and a smart phone.  For example, they do need to see when they’re getting a call about a wage garnishment, even if they’re on the road (and even if they’re not going to actually answer).  But most IRS employees are bean counters and the job of a bean counter is fairly sedentary.

The IRS' Human Capital Problems

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TIGTA’s latest audit report discusses the issue of human capital at the Internal Revenue Service.  Human capital consists of the skills, abilities, and contributions of the employees in an organization, and it is interconnected with key functions like hiring, training, and retention.  In this day and age, any discussion of human capital in our government necessarily must also include a discussion of funding.  Sure, human capital has always been an investment, but these days there is so little money to invest.

I think one of the most alarming issues identified in this report, at least from the perspective of a tax attorney, has to do with staffing.  The IRS is quickly losing its most valuable employees.  I don’t know if the IRS will ever be able to significantly reduce turnover with the rank and file.  Phone operators and other service center employees don’t get paid much and their jobs tend to be very stressful.  These just aren’t career / lifetime positions.  But that’s not the primary concern when it comes to staffing.  The bigger issue is the inevitable loss of managers and executives since changes in leadership can have an impact on all other IRS jobs.

This is what I found in TIGTA’s report that really blew me away:

[M]ore than one-third of all executives and almost 20 percent of nonexecutive managers are currently eligible for retirement. IRS data indicate that within five fiscal years, nearly 70 percent of all IRS executives and nearly one-half of the IRS’s nonexecutive managers are projected to be eligible for retirement. Overall, about 40 percent of the IRS’s employees will be retirement eligible within five fiscal years.

Executive positions are not easy to fill; it is critical that the IRS finds the right people to take over when the current executives retire.  In short, it takes a lot of human capital to ensure there will be enough human capital to go around in the future.  They will have their hands full during the next 5 years.

TIGTA Reports on Refund Fraud by Prisoners

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One of the chronic problems at the IRS is they keep issuing refunds to criminals.  Refund fraud (a criminal form of tax relief) is a widespread issue reaching all the way into our country’s prisons.  Most people would probably be shocked to know how common refund fraud is in prison.

The Treasury Inspector General for Tax Administration (TIGTA) has carefully studied this problem over the past seven years and the data shows things are not getting better.

In calendar year 2004, there were 18,103 fraudulent tax returns filed by prisoners and the IRS handed out $13.4 million in refunds to them.  In 2007, there were 37,447 fraudulent tax returns filed by prisoners and the IRS paid out $29.2 million.  The most recent data is from 2010 and it shows that there were a staggering 91,434 fraudulent tax returns filed from prison.  The IRS paid $35.2 million that year.  But to be fair, they also prevented $757.6 million worth of refunds (identifying them as fraudulent before the damage was done).

In a new study, TIGTA explains how the “Prisoner File” which the IRS relies on to help them vet out bad refund claims is often innacurate and incomplete.  Furthermore, the rules allowing certain communications between the Treasury and the Federal Bureau of Prisons have expired.  Given the statistical trend of this tax problem, it obviously should be an area of focus for our government in coming years.

The Dangers of the Split Refund Option

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TIGTA has sniffed out another serious IRS problem.  The latest TIGTA report expresses Treasury’s concern with the administration of direct deposit refunds by the IRS.  More taxpayers than ever are taking advantage of this option because it is the most convenient and fast way to get your refund.  But this also happens to be the way many tax refund crimes are perpetrated:

Direct deposit is frequently the payment method used by individuals who attempt to commit filing fraud. Direct deposit provides the ability to quickly receive fraudulent tax refunds without the difficulty of having to negotiate a tax refund paper check. To cash a check, individuals usually have to provide picture identification matching the name on the tax refund check

~ TIGTA Report No. 2012-40-118

Specifically, the concern addressed in this report has to do with the splitting up of deposits into multiple accounts.  The IRS allows refund recipients to specify that the funds be deposited into one, two, or three accounts if they so indicate on Form 8888.  However, this option often invites foul play.  As a way of measuring the magnitude of the problem, TIGTA counted the number of times multiple refunds were deposited into the same accounts.  This method isn’t exactly perfect because there are harmless reasons for multiple deposits, such as in the case of joint bank accounts.   However, even ruling out these benign cases, TIGTA is finding that tax cheats are abusing the split refund deposit option.  For example, some tax preparers are illegally diverting funds to their own accounts to cover their tax help and return preparation expenses.

TIGTA Finds Problems with IRS Hardship Program

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Due to our nation’s economic downturn, the number of taxpayers who come to the IRS with a documented inability to pay their back taxes has tripled from calendar year 2011 to 2012.  The IRS typically places these accounts into Currently Not Collectible (CNC) status where they remain, protected from IRS enforced collection activity, until the taxpayer’s financial situation improves.

Closing taxpayers’ balance due accounts as currently not collectible is a high-risk action because the balances due from the taxpayers may never be collected.

~ TIGTA 2012-40-108

A recent TIGTA study shows that IRS personnel are approving cases for CNC status incorrectly and without managerial approval.  What this means for the IRS is there are enormous tax collection opportunities being missed.

But this report also has implications on the taxpayer.  Managers often check the numbers and check for documentation to support claimed expenses.  When a case is slipped into CNC status without managerial approval, these details can easily be missed.  And if the oversight is caught at a later date, the IRS has a bad habit of pulling cases out of CNC status without explanation or warning.  Furthermore, if the case is not coded correctly (also a manager function), it will not be protected from enforced collection activity such as wage garnishment, bank levy, and asset seizure.